Many of us got a few cheap laughs last November when Neil Cavuto pressed a young idealist into explaining just how “free college” would be funded.
She didn’t have a clue – but at least her candidate has an idea.
We are going to provide free tuition to public colleges and universities by imposing a tax on Wall Street speculation.
— Bernie Sanders (@SenSanders) December 22, 2015
And by “Wall Street speculation,” Bernie means all financial transactions.
The specifics of the Sanders financial transaction tax are a 50 cent tax on every $100 of stock trades (0.5%), and slightly lesser amounts on bonds derivatives, and other financial instruments.
The structure of taxation with stocks being taxed highest makes no sense, as most speculation occurs through trading derivatives and foreign currency.
Bernie thinks we should be more like the Nordic nations – and doing so would require staying the heck away from implementing a financial transaction tax.
After all, Sweden tried it, and it backfired spectacularly.
In 1984, Sweden implemented a 0.5% tax on purchase and sale of stocks and later doubled it in 1986.
As for the results?
As Sweden’s finance minister Anders Borg told the BBC:
“between 90%-99% of traders in bonds, equities and derivatives moved out of Stockholm to London,” Borg said.
“The impact was basically that we did not get any tax revenue. It brought in very little tax money while moving most of the businesses outside of Sweden.
“We abandoned [the tax] because it was a very, very bad functioning tax.”
This occurred despite the fact that foreign exchange controls limited the outflow of capital from Sweden. As for the specifics of how equity trading was affected:
Average turnover fell 30 per cent during the second half of 1986 and throughout 1987. The turnover in the 11 most traded shares fell 60 per cent. It seems unlikely that this sharp decrease reflected a decline only in speculative trading.
As for bonds:
Later, in 1989, the tax base was broadened to include bonds. This, in turn, led to an 85 per cent reduction in bond-trading volume and a 98 per cent reduction of trading volume in bond derivatives. The increase in tax revenues resulting from the broadening was less than 5 per cent of what had been expected.
By 1991 the tax was repealed.
Let’s listen to Bernie Sanders and take a lesson from Sweden.
A financial transaction tax failed there, and will fail here.